MONEY MATTERS with Scott Woods of Bingham-Woods Independent Financial Advisors, Spalding

Staff at Bingham-Woods Independent Financial Advisors, Spalding.  Photo by Tim Wilson.
Staff at Bingham-Woods Independent Financial Advisors, Spalding. Photo by Tim Wilson.
  • If they turn their pension into cash, it will start to affect people’s entitlements to state benefits.

Pension savers on benefits are in danger of slipping through the cracks of the new freedoms by taking cash and thus losing their entitlements to state help.

Pension savers on benefits are in danger of slipping through the cracks of the new freedoms by taking cash and thus losing their entitlements to state help. The reforms unveiled by Chancellor George Osborne in last year’s Budget come into force from April 6, giving savers far greater control over their pensions than ever before. 
But savers on means-tested benefits, such as housing benefit, income support and income-based Jobseekers’ Allowance, could find their payments cut or stopped altogether if they take too much cash at once. 
Dominic Lindley, formerly of consumer rights group Which?, has warned that the changes mean savers rushing to access their pension pots could inadvertently deprive themselves of income. 
Not only do they risk moving into a higher tax band than normal and paying unnecessary income tax, but lump sum withdrawals could push their assets above the threshold of some means-tested benefits. 
Currently, untouched pensions will not be taken into account by the Department for Work and Pensions when assessing benefit claims. 
But as soon as savers access their pension, those “crystallised” assets will come into focus. 
Mr Lindley said: “The amount held in pension funds is excluded from those calculations but if you take money out, it will count against them. 
“For instance, if someone withdrew all their fund as cash at age 58, they could completely lose their entitlement to state benefits.” 
Under current rules, anyone below pension credit age with capital up to £16,000 can apply for housing benefit to help pay part or all of their rent. 
However, once an individual’s wealth goes above £6,000, they will start to see a reduction in benefit and once over £16,000, it will stop altogether.

Money Matters with 'Scott Woods.

Money Matters with 'Scott Woods.

Savers on state benefits have plenty of food for thought from Treasury reforms